Category Archives: Features

Several factors have converged in recent years to increase demand for strategic communications expertise in the financial industry. As a result, many firms accustomed to maintaining a low profile and focused solely on returns are now engaging in more public conversations, often demanding engagement with financial media. There is a growing consensus that the potential longer term costs of remaining detached from public engagement outweigh the shorter-term benefits.

In response to this shift, Diverging Markets is now concentrating its efforts on designing and implementing communications campaigns in economics and finance.

At present, we offer strategic knowledge and tactical expertise for the following:

Crisis communications / Reputation management

Digital communications / Social media strategy

Guest writing articles / White paper campaigns

Event marketing / Media training

We are actively seeking partners, clients and other interested participants.

I can be reached as always by email at ulysses@divergingmarkets.com and by twitter @DivergingMarket.

It’s been a while and I owe a lot of you an explanation on where I’ve gone. The short answer is that I’m putting the pieces in place for a new venture that I hope to be able to say more about by the end of the year. Until then, I’m on twitter with some regularity and am reachable as always by email. Hope all is well with everyone and be in touch.

Posted onDecember 18, 2013|Comments Off on Twas the Night Before Taper: A Wall Street Holiday Poem

After several months of silence, Mustafa Mond, whom we last heard from in April, has resurfaced. Today, Mr. Mond offers us this holiday poem:

TWAS THE NIGHT BEFORE TAPER

By Mustafa Mond

Twas the night before Taper, when all through the Street
Not a whale was stirring, not even a veep.
The earnings were prepped by accountants with care,
In hopes that bonuses would be much more than fair.

The bankers were settled all smug in their spreads,
While Fed interventions entranced all their heads.
And Barack with his selfie, and Michelle with hers too,
Readjusted their cameras to spy just on you.

When out in the markets there arose such a cry,
Barry sprang from West Wing to see what was nigh.
To the news wires he flew like a bat of hell,
Knowing hestill had the masses to quell.

Markets were speeding, out of control,
The VIX off the charts—who spiked the punch bowl?
When, what to his wondering eyes should appear,
But a great big helicopter with pallets in the rear!

With an exhausted driver, tired of dollar-yen,
And a new co-pilot, it must be St. Ben.
Faster than a flash crash his beneficiaries came,
And he whistled, and shouted, and called them by name!

“Now Blankfein! Now Dimon! Wells Fargo and Citi!
On Gorman! On Moynihan! NYSE and BONY!
To the highest of highs! ‘Til market bears have fled!
After all, in the long run, we’ll all be dead!”

The yield-hungry traders scrambled for carry,
Locking in profits before the curves vary.
And up to the market-top prices arose,
While Barack’s disapproval relentlessly grows.

And then, with the microphones set to full blast,
The media watched carefully for any contrast.
Trading floors went silent, as they are apt to do,
As Fed chairman testimony makes sense to so few.

He spoke all in jargon, acronyms and indices,
Durables and deficits and payrolls and factories.
A big pile of assets he still wants to backstop:
A mortgage, a bankruptcy, a credit default swap.

His data—how thorough! Statistics—such authority!
And his protégé, this Yellen, confirmed with a majority!
His post-Fed retirement expectantly awaits,
No doubt duly hedged for much higher interest rates.

Europe and China, oil exporters like Canada,
The Saudis and Russia, and fiefdoms like Panama,
Listened closely for signs of any new shocks,
But at least they have product–unlike tech stocks!

He was measured, cogent, lacking Greenspan’s grandiloquence,
But the reaction, as always, was irrational exuberance,
As he made quite clear that ZIRP would continue,
And Wall Street rejoiced–“to the discount window!”

Thus ended St. Ben’s last public report
As chairman of the lender of last resort:
Tapering delayed, until 2014,
When St. Ben will no doubt be far from the scene.

He sprang to his chopper, having completed his duties,
Leaving risks to be rated by S&P, Fitch and Moody’s.
And on his way out, they asked, “what of safety nets?”
He cried, “Happy Holidays! And good luck with your debts!”

Posted onMay 24, 2013|Comments Off on Chart of the Day: World Population Growth vs History of Technology

This was just sent in from an unidentified reader. I do believe there is such a thing as being “too meta” but when shifts are so visibly pronounced, as they are here, it’s worth taking a moment to stop and think about.

Posted onMay 10, 2013|Comments Off on Plain English: It’s Not What You Say, It’s What People Hear

This video stands to have an immediate impact on your income if you have anything to do with politics, journalism, public relations, branding, marketing or communications of any kind.

This video stands to have an ancillary impact on your income if you were not included in any of the above professions.

Note that the impact is not zero for anyone.

To wit:

“Any of you in corporate America who use the word, ‘brand’, please stop. Now. And don’t use that word again. Because brand is people like me creating words that have no meaning, trying to sell things that people probably don’t need and trying to explain things that aren’t important. Brand is cheap, brand is fake. Trust is everything, trust is real.”

“The rule of expectations is probably the most important when it comes to business or politics, which is that it is better for people to expect less and get more than it is for them to expect more and get less.”

Those are just two examples of what’s in there.

The speaker is Frank Luntz, an occasional contributor to Fox News. If you have a problem with that data point, consider that his advice and research is applicable across the political divide.

And now I’m gonna drop an even bigger BUT on you: it’s an hour long. Suck it up. Today’s Friday. Consider it an hour you won’t spend watching [insert latest trendy TV hit show here].

Posted onMay 1, 2013|Comments Off on A May Day Special: Why To Travel When You’re Young

I rarely republish in full something from another source, but excerpting this would really not do it justice. Fortunately, Andrew Henderson of Nomad Capitalist has granted us permission to do just that:

Why to travel abroad while you’re young… or not so young

I was talking to about travel with a close friend of mine recently. I was showing him the twenty or so countries I’ll be living in or visiting in the next year or so, and I could tell he was intrigued.

His mind was blown when I said my hotel room in Siem Reap, Cambodia would cost $9 a night. Private room. Private bath. Free wi-fi and breakfast. No forced labor in the afternoons.

Then he went on to tell me how he had all the opportunities to travel when he was younger. He could have taken the summer after high school to backpack through Europe with friends. Then he could have taken a year exploring the world before going back to grad school. Then he could have taken time off from work to go to England with his friends.

Posted onApril 28, 2013|Comments Off on How Much More Can Emerging Markets Debt Grow?

London-based Clear Path Analysis has an excellent report detailing investment considerations for Emerging Markets debt and FX investing. So good, actually, that it’s forcing me to second-guess my previously held view that Emerging Markets debt is in a bubble approaching crisis proportions. It’s a long-ish report (32 pages) and it’s all important, so let’s get straight to some of the notable commentary they’ve put together. I think these quotes really speak for themselves.

One of the main reasons why investors are beginning to allocate into EM is because of the Asian sovereign credit re-rating trend. Asian sovereign credit fundamentals have generally been on the up for the last six years which is in contrast to other developed countries. The fiscal discipline and underlying economy growth has capped government debt to GDP without exceptions and trade surpluses over the past decade have resulted in a build up of foreign exchange reserves.Continue reading →

Because, you see, in 2040, when I’m 67 years old, forget the BRICs or Mexico or Dubai or South-South anything; Turkey’s gonna be an export boomtown. Or at least that’s one of the forecasts E&Y is touting in its new Rapid Growth Markets forecast. And if, come 2040, I’m not rolling G-style through the souks of Istanbul, I’m definitely suing the crap out of the 2040 incarnation of Ernst & Young, which by then might be better known as ErnstPWCDeloitte-Slim/Gates LLC dot unit D sector.

In all fairness E&Y does a dependable job of summarizing the main economic characteristics of developing markets for those who don’t plug into this stuff every day.

And they also have a nifty online interactive tool you can play with here.

For the rest of us…the thing is I really just have a hard time taking seriously any forecast that goes out to 2040. But let’s try anyway. According to the charts, those of us lucky enough to still be alive in 2040, assuming there’s still a human race by then, should probably be doing something with exports. But definitely not anything between the Eurozone and the US:

Actually, at this point we’re at one year and one month but I was too caught up in other stuff to do this last month.

So I’ve been looking at the site metrics for the first year of operation from March 4, 2012 to March 3, 2013.

Here’s the breakdown of where readers are visiting from:

The “Others” category I have the full list of but it’s too long to put here. What I can say is that it runs 169 countries and territories long. Of the 193 member states of the United Nations, I suppose it’s easier to count the countries not on there, a task I may take up next year at this time.

Also, it seems there are a quite a lot of visitors from the “not set” category. Someone more familiar with the inner workings of Google analytics and firewalls could probably explain this better, but I’m willing to bet China comprises a fair proportion of this category.

Looking at the city breakdown is way too unwieldy to do in its entirety, but here are the top 20, in order:

The New York Fed has just published what is absolutely mandatory reading for anyone with a stake in the foreign exchange market. It’s a 10-page pdf entitled, “Do Industrialized Countries Hold the Right Foreign Exchange Reserves?” and is one of those rare documents whose entire text is quotable, making excerpting rather difficult, but I’ll try to keep it short. The abstract provides a pretty good summary:

That central banks should hold foreign currency reserves is a key tenet of the post–Bretton Woods international financial order. But recent growth in the reserve balances of industrialized countries raises questions about what level and composition of reserves are “right” for these countries. A look at the rationale for reserves and the reserve practices of select countries suggests that large balances may not be needed to maintain an effective exchange rate policy over the medium and long term. Moreover, countries may incur an opportunity cost by holding funds in currency and asset portfolios that, while highly liquid, produce relatively low rates of return.

And this, from the opening paragraph, is also worth drawing attention to:

To date, the foreign exchange reserves of major industrialized economies have received relatively little attention in public policy circles, with few questions posed regarding their optimal size, composition, and use. Instead, discussion of foreign exchange reserves tends to center on the large holdings of emerging market countries—including China, whose reserves reached about $3 trillion in mid-2012. Foreign currency reserves are also overshadowed in public discussion by the much larger external imbalances that countries amass in the form of trade deficits and surpluses.

The key element here is that this paper only looks at the US, the UK, Switzerland, Japan, Canada, and the euro area, and rightly so as these are the big fish of the global FX market. The brief mention of emerging market countries’ holdings highlights what’s implied in the debate but rarely stated explicitly, so allow me to do so now:

Posted onMarch 11, 2013|Comments Off on Basic Strategy For Hyping An Investment Trend

I’ve seen this happen so many times, I could teach a class on it:

Take a small data sample of something that confirms the view you’re determined to promote;

Regardless of how rigorous the methodology or how representative the sample size, declare that this is indicative of a broader trend–forest for the trees or some such thing;

Willfully ignore any aspects of this declaration that remotely contradict your view;

Deny/insult/discredit/lash out at anyone who tries to take an even-handed view on it;

Begrudgingly concede that nothing is perfect but that a positive attitude is what counts;

Neglect to make clear the very pertinent fact that you have a vested interest–financially, politically, reputationally–in a positive outcome which therefore inhibits your own objectivity;

If your lawyers insist, loosely outline the caveats to your opinion and bury them somewhere where they are least likely to be noticed (“past performance is not indicative of future results” is the boilerplate here);

Debunk the caveats by paraphrasing points 1 and 2 and emphasize the probability your forecast will prevail;

Lather;

Rinse;

Repeat.

Now, let’s consider a brief list of where we’ve seen this template applied in the recent past:

Posted onFebruary 20, 2013|Comments Off on Map Of The Day: Emerging and Frontier Markets Dominate Global Reserves of Key Commodities

Why does it not surprise me that a map showing commodities reserves of emerging and frontier markets would have come from a Glencore report?

Looking at it in these terms kind of raises an obvious question: how is it that these countries aren’t in more dominant positions of setting the global agenda, policymaking, or development? Chalking it up to corruption is a bit too easy, and I’m honestly coming around to the opinion that nobody is totally free from corruption. It’s partly corruption, sure, but it’s also just simple logistics.

Posted onFebruary 14, 2013|Comments Off on Central Banking Today: Game Theory Now More Than Ever

Take a look at this recent column from PIMCO’s Mohamed El-Erian and try to tell me otherwise:

With many other policy makers essentially missing in action, central banks find themselves in leadership roles not out of choice but necessity. Given imperfect tools, their involvement entails, to use the US Federal Reserve chairman Ben Bernanke’s phrase, “benefits, costs and risks”. They believe that macroeconomic benefits will outweigh the collateral damage; and they hope that they will buy sufficient time for others to respond properly and for economies to heal endogenously.

The dilemma of modern central banking was captured well last week by incoming BoE governor Mark Carney in his testimony to the UK House of Commons Treasury committee. While recognising the risks of further QE, the current Bank of Canada chief argued that central banks should act to avoid sluggish growth raising the natural unemployment rate via hysteresis.

The fundamental problem is that central banks are pursuing too many objectives with too few instruments. That is why outcomes consistently fall short of their expectations; and also why talk of exit is repeatedly shelved.

Then there is the biggest issue of all: the effects of unconventional monetary measures are likely to become volatile and highly binary if a growing number of central banks around the world feel they have no choice but to join the current western policy stance.

A larger global shift to expansionary monetary policy would enhance the probability of triggering “wealth effects” and “animal spirits”: the two channels through which policy-bolstered asset prices translate into better economic fundamentals. With that, the greater the likelihood of a pivot from “supported growth” to “genuine growth”.

However, relative pricing channels, including currency relationship, would be crippled if too many central banks were to opt for the same policy. Harmful beggar-thy-neighbour effects would amplify damage from artificial surges in asset prices that encourage irresponsible risk taking, fuel “bad inflation” and worsen the risk of disorderly economic and financial deleveraging.

Posted onFebruary 5, 2013|Comments Off on Frontier Markets! These Prices are IN-SANE!

Sometimes when I read mainstream financial media coverage of how frontier and emerging markets are booming-heaving-climbing-winning-advancing-accelerating-faster-bigger-better-more, I get this weird sensation in my gut. It’s like I’m listening to some combination of carnival barker and auctioneer and used car salesman all rolled into one.

Actually, I know what it reminds me of. This is exactly what it reminds me of:

Take a look at this opening from this Bloomberg article last week and see if you don’t feel it too. It starts with the headline, “Best Stock Pickers Trawl Frontier Markets as U.S. Funds Lose” and continues as such. Try reading this aloud in as few breaths as possible:

Posted onJanuary 23, 2013|Comments Off on Chart of the Day: Frontier Markets Fixed Income Yields

We would be wise remind ourselves first of the definition of the impossible trinity: it is impossible to have (a) a fixed exchange rate, (b) absence of capital controls and (c) an independent monetary policy.

“The chart on the right hand side compares currencies in terms of Purchasing Power Parity. What the graph tells us is that the adjusted value of the Brazilian Real is similar to the US$, while most frontier market currencies are systematically undervalued.”

The problem I’ve always had with Purchasing Power Parity is that it assumes equivalent standards of living across markets when in fact that is very rarely the case. Put another way, a dollar may buy more in Brazil than in Vietnam, but this says nothing about what the average citizen in either of those countries needs to sustain a living.

But that’s an argument for another time and another context. Otherwise, this is a very compelling chart. A couple things off the top of my head:

First came a report from BBVA that remittances to Mexico have decreased for five consecutive months, with the $1.695 billion recorded in November apparently 5.1% lower than in November 2011. Furthermore:

“Among the factors explaining the fall in remittances to Mexico over recent months are: the weak employment situation of Mexican migrants in the U.S., associated with the uncertainty regarding the future of the US economy, with alternatives being sought to adjust the major fiscal deficit. There is also a comparison effect with November 2011, when annual growth in remittances was 9.4%.”

Posted onDecember 19, 2012|Comments Off on From the Department of Feeling Good: The Importance of Acknowledgement

Normally I downplay lengthy videos because I recognize that we’re all time-stretched and attention-deficient, but in this case, a) this will have a direct and immediate impact on your income potential, b) the speaker here is a renowned expert in the field and c) it’s holiday season so you’re not getting any work done anyway. Plus, all contemporary forms of media depend on this precise topic for survival. So if you can manage to just unplug everything else for about 15 minutes, I think you’ll find this worth your while. Ladies and gentlemen, Christopher Littlefield: